Monetary Debasement

Monetary Debasement

Monetary debasement is when a currency loses its value or purchasing power over time. This means the same amount of money buys fewer goods and services than before.

Two Forms of Debasement

1. Historical: Metal-Based Money

In the past, money was made from precious metals like gold and silver. Rulers would reduce the amount of metal in each coin while keeping its stated value the same. For example, they might mint a silver coin with 90% silver instead of 100%.

This allowed them to create more coins from the same amount of metal, often to fund wars or government spending. But the public noticed, and soon prices rose because people no longer trusted the coins to hold their value.

2. Modern: Fiat Currency 🏦

Today, most money is not backed by physical metal. Instead, governments and central banks can create currency digitally. When they increase the money supply too quickly, such as through money printing or quantitative easing, it leads to more dollars chasing the same amount of goods.

This lowers the value of each dollar. For example, if the money supply jumps by 30% in a year, your saved dollars can buy less, even if prices seem stable at first.

Why It Matters

Monetary debasement can lead to inflation, making it harder for people to save or plan for the future. It also creates a shift in wealth. Debtors benefit because they repay loans with devalued money, while savers and workers lose out as their money loses value.

To protect themselves, investors often turn to real assets like gold, real estate, or inflation-protected bonds. This is known as the "Debasement Trade".

Understanding monetary debasement helps explain why inflation happens, how it affects wealth, and why people seek safer places to store value during uncertain times.

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Disclaimer: This post is for informational purposes only and does not constitute financial, legal, or investment advice. Please consult a qualified professional for guidance tailored to your situation.

For personalized support, contact GLOBAL ABAS Consulting, LLC with your specific questions or concerns.

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